ECO610DiscussionsWeek 1 - Discussion 1- Comparative Advantage

What is wrong with the argument is that because ‘many goods are nontraded’ does not mean that there is no trade. Also, many goods are nontraded because they do not need to be traded, such as fresh food or a home one lives in. Many things that are traded are traded in large quantities, like cars and electronics, due to their reduced cost of transportation. Also, trade in services is not typically as large as goods. Also, it may not be true that the United States has a comparative advantage in services. The United States has a comparative advantage in high-level capital goods because they are already more productive than many traded on world markets. Also, many of the trades done on world markets can be made domestically with less cost than trading with other countries because capital is more expensive domestically than trading with other countries. In addition, workers are very involved in hiring and firing, which helps develop jobs for people locally instead of going overseas.

The fact that many goods are nontraded affects the extent of possible gains from trade in that they hardly make up the world’s trade (Komiya,2017). Goods that could be traded if they were traded are not. They are not because they are essential to the consumer and the companies that use them; they would increase consumer demand for them. Also, if these goods were traded, it would raise their prices by producing them because they cost more. This increase in prices would attract consumers but also cause companies that use these goods to cut down on their production of these goods, which will also make them less important to consumers and non-profits using the products in question. Thus, if many of these goods were traded, they would be used less, so it would hurt the economy overall.

Reference

Komiya, R. (2017). Nontraded goods and the pure theory of international trade. International Economic Review, 8(2), 132-152.